Reinventing Human Resource Management

HRM14: Provide Incentives to Encourage Voluntary Separations

Background

Throughout the federal government, departments and agencies are being
asked to work more efficiently, that is, with fewer resources. To
achieve this goal, many organizations are facing potentially massive
restructuring and downsizing. Incentives are needed to encourage
voluntary separations, thereby reducing or eliminating the need for
relocating, reassigning, or separating employees under reduction in
force procedures.

Need for Change

According to the Office of Personnel Management (OPM), voluntary
early retirements among eligible employees have dropped from
approximately 17 percent in the mid-1980s to 4 percent in 1992. After
remaining relatively constant at approximately 36 percent during the
same time period, regular optional retirements dropped to 23 percent
in 1992.(1) Overall attrition from federal service is at its lowest
level since 1973, when OPM began tracking these data.

The federal government's recent experience with separation incentives
suggests that a large percentage of employees will choose regular or
early retirement if incentives are included. The Office of Thrift
Supervision (OTS) and the U.S. Postal Service (USPS), in 1991 and
1992, respectively, offered lump sum payments equivalent to six
months' salary to persons eligible for either early or regular
retirement. In OTS, 38 percent of early retirement and 53 percent of
regular retirement eligibles accepted the offer. In USPS, 27 percent
of early retirement and 43 percent of regular retirement eligibles
accepted. In 1993, Department of Defense (DOD) employees were offered
the lesser of $25,000 or the amount the employee would otherwise be
entitled to receive as severance pay. About 20 percent of early
retirement eligibles and 40 percent of regular retirement eligibles
have retired from DOD recently.(2)

Actions

1. Provide departments and agencies with the authority to offer
separation pay. (3)

By October 1993, OPM should forward draft legislation to Congress to
permit any department or agency to offer cash payments to encourage
eligible employees to voluntarily separate from the federal service,
whether by retirement or resignation, to avoid or minimize the need
for involuntary separations due to reduction in force,
reorganization, transfer of function, or similar action. The
legislation should include a comprehensive, governmentwide strategy
for determining the dates during which cash payments would be offered
to maximize acceptance rates. Eligible employees would be those
serving under permanent appointment without time limitation for a
continuous period of at least 12 months, excluding reemployed
annuitants and employees who would otherwise be eligible for
disability retirement. The law will include a provision requiring
repayment of separation pay should the individual become reemployed
by the federal government within two years of the date of separation.
Departments and agencies will fund the costs of this measure from
within their available appropriations.

2. Decentralize the authority to approve early retirement. (3)

By October 1993, OPM should forward draft legislation to Congress to
allow OPM to assess an actuarial charge against agencies to cover the
estimated present value of the added cost to the retirement fund of
early retirement, currently estimated at 9 percent of final pay. Once
the new legislation has been enacted, OPM should delegate broad
authority under the relevant section of the current law(3) to permit
departments and agencies to make their own determinations using the
criteria outlined in the law to allow their employees to retire
early.(4)

3. Authorize departments and agencies to fund job search activities
and retraining of employees scheduled to be displaced. (3)

By spring 1994, OPM should convene an interagency task force to
develop proposals, including legislation if necessary, by September
1994 to allow departments and agencies to fund job search activities
and retraining to facilitate placement of employees who are otherwise
scheduled for downgrade or separation.

4. Expand outplacement services. (1)

By March 1994, OPM should develop and implement a comprehensive,
readily available, state-of-the-art information system for the
purpose of informing employees about the availability of federal and
other public sector job opportunities.

By October 1993, OPM should forward draft legislation to Congress to
delete the section of the law that exempts the annual leave
accumulated by members of the Senior Executive Service, the Senior
Foreign Service, the Defense Intelligence Senior Executive Service,
the Senior Cryptologic Executive Service, and the Federal Bureau of
Investigation and Drug Enforcement Administration Senior Executive
Service from the limitation otherwise imposed by that section on
annual leave accumulation.(5) Annual leave accumulation for
individual senior executives will be limited to 240 hours. This
limitation would bring senior executives in line with other
government employees and serve as an incentive for some senior
executives to take advantage of separation incentives.

Cross References to Other NPR Accompanying Reports

Improving Financial Management,
FM13: Charge Agencies for the Full Cost of Employee Benefits.

Transforming Organizational Structures,
ORG01: Reduce the Costs and Numbers of Positions Associated with
Management Control Structures by Half; and ORG02: Use Multi-year
Performance Agreements between the President and Agency Heads to
Guide Downsizing Strategies.

Endnotes

1. Office of Personnel Management, "Retirement Trends With and
Without Incentives: Summary Through July 30, 1993," p. 1.
(Unpublished.)